The Electricity Act, 2003

From Wikipedia, the free encyclopedia

This article needs additional citations for verification. Please help improve this
article by adding citations to reliable sources. Unsourced material may be challenged and
removed. (May 2014)

The Electricity Act, 2003

An Act to consolidate the laws relating to generation, transmission,

distribution, trading and use of electricity and generally for taking
measures conducive to development of electricity industry, promoting
competition therein, protecting interest of consumers and supply of
electricity to all areas, rationalisation of electricity tariff , ensuring
transparent policies regarding subsidies, promotion of efficient and
environmentally benign policies constitution of Central Electricity
Authority, Regulatory Commissions and establishment of Appellate
Tribunal and for matters connected therewith or incidental thereto.

Citation

Act No. 36 of 2003

Enacted by

Parliament of India

Date enacted

26 May 2003

The Electricity Act, 2003 is an Act of the Parliament of India enacted to transform the power sector
in India.

The act covers major issues involving generation, distribution, transmission and trading in power.
While some of the sections have already been enacted and are yielding benefits, there are a few
other sections that are yet to be fully enforced till date.
Contents
[hide]

1 Background

2 Generation

3 Distribution

4 Key features

5 Role of CEA

6 Left Parties Opposition

7 Amendments

8 Exceptions

9 See also

10 References

Background[edit]
Before Electricity Act, 2003, the Indian electricity sector was guided by The Indian Electricity Act,
1910 and The Electricity (Supply) Act, 1948. The generation, distribution and transmission were
carried out mainly by the State Electricity Boards in various States. Due to politico-economic
situation, the cross-subsidies reached at an unsustainable level. For the purpose of distancing state
governments from tariff determination, The Electricity Regulatory Commissions Act was enacted in
1998. So as to reform electricity sector further by participation of private sector and to bring in
competition, Electricity Act was enacted in 2003.
With effect from 2 June 2003 India has adopted a new legislation called the Electricity Act 2003, to
replace some age-old existing legislation operating in the country. The new act consolidates the
position for existing laws and aims to provide for measures conducive to the development of
electricity industry in the country. The act has attempted to address certain issues that have slowed
down the reform process in the country and consequently has generated new hopes for the
electricity industry. This paper reviews the Electricity Act 2003, to highlight how the new features are
different from the existing legal provisions and whether these measures have economic rationale.
An act to consolidate the laws relating to generation, transmission, distribution, trading and use of
electricity for taking measures conducive to development of electricity industry, promoting
competition therein, protecting interest of consumers and supply of electricity to all areas,
rationalisation of electricity tariff, ensuring transparent policies regarding subsidies, promotion of
efficient and environmentally benign policies, constitution of Central Electricity Authority Regulatory
Commissions and establishments of Appellate Tribunal for matters therewith or incident thereto.

Generation[edit]
The Act delicenses power generation completely (except for hydro-power projects over a certain
size) As per the Act, 10 per cent of the power supplied by suppliers and distributors to the
consumers has to be generated using renewable and non-conventional sources of energy so that
the energy is reliable.
Electricity generation has been made a non-licensed activity and the techno-economic clearance
from the Central Electricity Authority (CEA) has been done away with for any power plant, except for
hydro-electric power stations above a certain amount of capital investment. This has been provided
in section 7 and 8 of the Electricity Act 2003. The generators can sell electricity to any licensees or
where allowed by the state regulatory commissions, to consumers directly. The provision of direct
sale of electricity by the generators, when and where allowed, would promote more IPP participation
in the power generation, as these consumers are more creditworthy and bankable compared to
many SEBs. However the act provides for imposition of a surcharge by the regulatory body to
compensate for some loss in cross-subsidy revenue to the SEBs due to this direct sale of electricity
by generators to the consumers.

Distribution[edit]
The Act delicenses distribution in rural areas and brings in a licensing regime for distribution in urban
areas.
However, as per the Act, only 16 states in India have notified what constitutes as rural areas and
therefore the rural distribution is yet to be freed up in nearly one third of the country.

Key features[edit]
The main features of the act are as follows:
1. Generation is been de-licensed and captive generation freely permitted, i.e. any generating
company may establish, operate and maintain a generating station without obtaining a
licence under this Act with the only exception that it should comply with the technical
standards relating to connectivity with the grid referred to in clause (b) of section 73.
Note: Hydro-projects, however, need concurrence from the Central Electricity Authority.
2. No person shall
(a)transmit electricity; or
(b)distribute electricity; or
(c)undertake trading in electricity,
unless he is authorised to do so by a licence issued, exceptions are informed by authorised
commissions through notifications.
3. Central Government may, make region-wise demarcation of the country, and, from time to
time, make such modifications therein as it may consider necessary for the efficient,
economical and integrated transmission and supply of electricity, and in particular to
facilitate voluntary inter-connections and co-ordination of facilities for the inter-State,
regional and inter-regional generation and transmission of electricity.
Transmission utility at the central and state level to be a government company with
responsibility of planned and coordinated development of transmission network.
4. Open access in transmission with provision for surcharge for taking care of current level of
cross-subsidy, with the surcharge being gradually phased out.

5. The state governments are required to unbundle State Electricity Boards. However they may
continue with them as distribution licensees and state transmission utilities.
6. Setting up State Electricity Regulatory Commission (SERC) has been made mandatory.
7. An appellate tribunal to hear appeals against the decision of (CERC's) and SERC's.
8. Metering of electricity supplied made mandatory.
9. Provisions related to thefts of electricity made more stringent.
10.Trading as a distinct activity recognised with the safeguard of Regulatory commissions being
authorised to fix ceiling on trading margins.
11. For rural and remote areas, stand-alone system for generation and distribution is permitted.
12.Thrust to complete rural electrification and provide for management of rural distribution by
panchayat, cooperative societies, NGOs, franchisees etc.
13.Central government to prepare National Electricity Policy and Tariff Policy.
14.Central Electricity Authority (CEA) to prepare National Electricity Plan.

Role of CEA[edit]
The role of CEA is limited to policy recommendations, monitoring electricity sector performance,
advising the Ministry of power on technical issues, data management/dissemination of the power
sector, etc.
Preparation of technical standards for construction of electrical plants, electric lines
and connectivity to the grid is the responsibility of CEA as per section 73 (b) of the Electricity Act,
2003.[1] However, as per section 7 of this Act, a generating company may establish, operate and
maintain a generating station if it complies with the technical standards only relating to connectivity
to the grid as given in clause (b) of section 73. This implies that generating stations need not follow
compulsory the CEA technical standards specified for construction of electrical plants and electric
lines. Similarly, transmission / distribution licensees need not implement compulsory the standards
for construction of electric lines except the Grid Code/ Grid Standards for the operation and
maintenance of transmission lines specified by CEA under clause 73 (d) of this Act. Many times,
these CEA standards are conservative compromising optimum design features /cost/ utility and also
do not give full clarity in selection of the system / sub system capabilities of electrical plants and
electric line.

Left Parties Opposition[edit]

Left parties opposed the clauses related to competition in electricity market such as unbundling of
Electricity Boards and open access and also had strong objection regarding elimination of cross
subsidies. UPA government, in its first tenure agreed for some of the amendments and according
clause regarding cross subsidies are amended. In its second tenure, UPA government published a
draft amendment of The Electricity Act 2003 with the main intension of separation of retail sale of
electricity from distribution business.

Amendments[edit]
Several amendments were made after 2003 in the Act. The amendments proposed during 2015 is to
make major changes. The important provision is to introduce electricity supply companies who will
not own electric lines. The Government says it would attract competition and there fore will cause
reduction in price. But those oppose these amndments say that in Indian situation competition can
not bring down the cost. Electricity finance experts like Dr. D. Shina are of the opinion that it will
weaken the public sector discoms and can damge power sector industry in the countr